After a shaky stretch, Washington and Delhi have a window to pivot the partnership beyond just arms traders. These old democratic friends need a seamless, strategic partnership

: Indian Prime Minister Narendra Modi waves as he arrives outside the West Wing of the White House for an Oval Office meeting with U.S. President Barack Obama September 30, 2014 in Washington, DC. The two leaders met to discuss the U.S.-India strategic partnership and mutual interest issues. (Photo by Alex Wong/Getty Images)

On January 26, Barack Obama will become the first U.S. president to preside as chief guest at India’s 65th Republic Day anniversary – an invitation usually extended to India’s closest diplomatic allies. But what is more important is Prime Minister Narendra Modi’s shift away from India’s outdated foreign policy of “nonalignment” toward a sharper strategic focus. Modi’s move signals that India is no longer afraid to show a more strategic U.S.-India partnership is in India’s national interest. Making for strong symbolism, Obama will witness the celebration of India’s democratic constitution and military might, and likely sign on to a renewal of a ten-year pact to expand defense and security ties.

Signed in 2005, the expiring defense agreement committed to expanding defense trade, technology transfers, coproduction, and collaboration on counterterrorism, security and stability. Today, India conducts more joint military exercises with the United States than with any other country; defense sales shot up from zero in 2008 to $9 billion last year resulting in the United States displacing Russia as India’s biggest supplier.

The U.S.-India defense relationship started on a tough footing even after the end of the 1998 U.S.-imposed nuclear test sanctions on India. India harks back to U.S. failures to approve licenses for military spare parts – for instance, the U.S. decision to halt the engine supply for India’s Shivalik-class stealth warships in 2009 – and remains reluctant to trust America’s reliability in times of need. Aiming to fix that, the United States removed restrictions on technology sharing with India to deepen trust and cooperation. However, Indian firms went for the lowest bidder and removed the U.S.-made F-16 and FA-18 jets from their combat aircraft competition in 2011, reducing geostrategic leverage with the United States just when it offered a chance to mend ties.

So how can this time be different? The 2005 agreement lacked strategic focus and failed to transform the relationship from a simple arms trade into a seamless, committed, partnership. But, unlike India’s former Prime Minister Manmohan Singh, Modi seems game to put India’s national interest and shared interests with the United States ahead of past grievances. The invitation to Obama is a case in point. In the face of rising security threats – Chinese incursions into Indian territory, Pakistan’s sporadic border firing along the Line of Control, the expansion of al Qaeda and the Islamic State of Iraq and Syria (ISIS) – Modi aims to bolster India’s military might. The two countries are bound together by common interests like containing China’s growing power, post-U.S. withdrawal coordination in Afghanistan, and the need for maritime security in Asia. Modi must remember that a deeper defense relationship can bring long-term mutual gain. By doing more business with India, the United States can help marry Modi’s priorities of military modernization and fixing India’s sclerotic defense industry. In turn, India can provide more business to American defense companies and prove to be America’s strategic, democratic, counterweight in Asia.

Here are three areas that Modi should focus on to deepen the U.S.-India defense relationship from the Indian side.

First, Modi must work to mend the U.S.-India trust deficit. In addition to memories of 1998 U.S. sanctions, America’s arms sales to Pakistan have always been a cause of concern for India. By the same token, suspicious of India’s close ties with Russia since the Cold War era, the United States is guarded with its transfer of sensitive technology and know-how to India. But Modi is already changing the geopolitical dynamic. He is close to America’s closest ally in Asia; he shares a warm relationship with Japan’s Shinzo Abe. He is also interested in better relations with Israel. On the flip side, Russia’s military cooperation agreement with Pakistan last November (the first since the fall of the Soviet Union) and Putin’s plans to build a second gas pipeline to China reinforces the argument that India should work to diversify from its heavy reliance on Russian suppliers – and better – to ideologically similar partners. With reliable technology and proposals for co-development, the United States is also poised to overturn India’s recurrent accidents when using Russia’s obsolete Soviet-era equipment.

Second, Modi must do what it takes to make the Defense Trade and Technology Initiative (DTTI) – America’s 2012 initiative to transform U.S.-India defense ties from a buyer-seller relationship to a partnership of co-development and coproduction – the centerpiece of the new defense agreement. India’s continued failure to build a strong defense industry base coupled with the high demand to meet growing security threats means that India currently depends on imports for 70 percent of its defense requirements. Modi’s “Make in India” initiative also aims to expand India’s defense manufacturing sector with a fillip to foreign investment. In this vein, the newly nominated U.S. Defense Secretary, Ashton Carter, is good news for India. During his role as U.S. Deputy Secretary of Defense, Carter oversaw the creation of the DTTI as he believed India to be America’s destined security partner. Besides coproduced technology, the DTTI has the potential to boost economic growth, jobs, and people-to-people ties for both countries. However, the DTTI never took off as A. K. Antony, India’s former minister of defense, halted most defense acquisitions citing fears of corruption. The new minister, Manohar Parrikar, should treat the cause rather than the symptom. He must weed out corruption in procurement processes. Unlike the past, he must drive the civilian bureaucracy to make strategic defense acquisitions – ones that balance cost considerations with support to build India’s defense industry and any possible geopolitical leverage over the supplying country – rather than just picking the lowest bidder.

Third, Modi should continue to create a better business environment for foreign investors to discharge (unpopular but domestically important) their offsets obligations after a defense sale. Currently, India’s offsets policy requires that foreign suppliers (governments or companies) reinvest 30 percent of any defense sale over $55 million into India’s state-owned or private defense companies to enable technology transfer and rejuvenation of India’s defense sector. The defense ministry has also announced a procurement plan worth $100 billion for the next decade to meet India’s defense needs. But vendors hardly find decent reinvestment options in Indian R&D or products with export potential to discharge their offset requirements. Last year, the Modi government increased its defense expenditure by 12 percent until February 2015, and raised the cap on foreign direct investment in defense from 26 to 49 percent. While this is encouraging news, India’s budget for the fiscal year beginning 2015, to be released next month, should aim to allocate more defense expenditure towards capital outlay to boost investment in R&D to attract foreign investors. India needs to reform its attitude of small purchase orders, its difficult procurement process, and scarce reinvestment options as they pose a high risk for foreign investors who are willing to engage in meaningful technology transfer.

Against the backdrop of increasing security threats and closer alignment between Russia, China, and Pakistan, a national interest-driven Indian foreign policy is a welcome change. India should put a genuine effort into forging a closer strategic partnership with the United States to achieve India’s goal of military modernization. Both sides would benefit by making the DTTI the foundation of the defense relationship. As a first small step, it is speculated that they will announce the coproduction of unmanned ‘Raven’ drones and C-130 transport planes. At the same time, the United States must work toward making the U.S.-India partnership the linchpin of its pivot to Asia. If the world’s oldest democracy and the world’s largest democracy are to renew their defense pact during this symbolic visit, both sides must remember to invest in a relationship – not a transaction – if they want to build on each other’s strengths.